How Effective Have The Fed's QE Programs Been?

In the most recent newsletter, I discussed this year's rise in the markets and the fact that all of the gains have occurred during some of the historically weakest months of the year. I also noted a few interesting facts:

These gains have also come at a time when corporate profits are slowing; economic growth remains weak and geopolitical tensions have been on the rise. UBS published a research piece last week entitled 'We are worried' which stated:

“Firstly we are concerned about valuations. We show that equity markets are stretched (e.g., more than 80% of the S&P rally since last year is due to re-rating), but we also find that the fixed income market has become quite rich (we have been overweight European peripherals for more than a year on valuation grounds, we show that this argument no longer holds), and the same is true of the credit market.

Second, because capital has been flowing rapidly into risky assets, we document that argument and here too find evidence that the market might be ahead of itself. We read the market reaction last week to the Portuguese news as a sign that the market is indeed too complacent and could correct rapidly.”

The reason for the rise, of course, is the same as it has been seen 2009 which has been almost solely due to the Federal Reserve’s ongoing liquidity injections into the financial markets. The chart below shows three things from the beginning of 2014:

The S&P 500

The monthly NET changes to the Fed’s balance sheet

The cumulative changes to the Fed’s balance sheet.

When it comes to the financial markets, Senator Chuck Grassley summed it up best by stating that the Federal Reserve was the "...only game in town."

As shown in the chart below, every $1 of growth in the S&P 500 index required just $1.89 of bond purchases.

This inflation of asset prices by the Federal Reserve was a direct goal, rather than a byproduct, of the various monetary policies implemented since 2008. Ben Bernanke, in 2010 following the implementation of QE 2, wrote in an Op-ed for the Washington Post:

"...higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

It is quite clear that Bernanke achieved his goal of inflating asset prices by expanding the Federal Reserve's balance sheet by 371.64% since the end of the financial crisis. However, was he as successful in fulfilling his other objectives? The following charts perform the same cost/benefit analysis as shown above for each of the metrics that Bernanke detailed above.

Economic Growth

Consumer Confidence

Consumer Spending

Corporate Investment

Corporate Profits

Wages To Profits Ratio

Employment (Full-Time)

(Note: The total working age population (ages 16-64) grew by 5.41% during the same period. There is NO evidence that the Fed's monetary interventions had any impact on employment growth.)

Employment - Not In Labor Force

In December of 2013, Ben Bernanke stated:

"I'm pretty comfortable with the idea that this program did in fact create jobs."

First, businesses create jobs, however, as stated above, there is little evidence that suggests that the job creation was anything other than just the incremental demand created by population growth. Furthermore, it cost roughly 63% less to move someone out of the labor force versus becoming employed. Despite, the Fed's claims that we are nearing "full employment" in the domestic economy, I am quite sure the 90+ million individuals sitting outside the labor force would disagree.

Secondly, while the Federal Reserve achieved its goal of inflating asset prices (the most cost efficient use of their monetary policy at $1.89) it failed to translate into the rest of the economy. The question that the Federal Reserve should be asking is why?

Considering that roughly 85% of Americans have little, or no, money invested in the financial markets the inflation of asset prices have had virtually no effect on their standard of living. In an economy that is roughly 70% driven by consumption, asset price inflation does not provide from additional consumption for those unaffected.

For the majority of "Main Street," household budgets remain strained due to rising costs of living that exceed current wage growth. This has kept consumption weak which has continued to suppress wages, employment, production and investment.

While most of Wall Street continues to insist that the economy has recovered, the effective costs of that recovery, while still extremely muted, has been very expensive. Yes, corporate profits are indeed higher; however, those profits have come at a huge expense on the average worker as shown below.

Did the Fed's monetary intervention programs keep the economy from sliding into a much deeper recession? Probably.

Have the programs been effective in achieving Bernanke's stated goals? Not really.

What the Fed's monetary policy has succeeded in doing is pulling forward future consumption to boost short-term economic growth. This would have been a great success had that process been used to fully deleverage balance sheets, restructure entitlement programs and refinance the government's debt at substantially lower rates. Instead, the flush of liquidity was used to boost corporate profitability and act as a massive transfer of wealth from the middle class to the "rich."

How this all ends is really anyone's guess, however, I suspect that future historians will have much to write on the matter.

Of course the Fed was successful....just ask them.
OR, ask someone who is fully invested in the stock market.
For every action there is/ are equal and opposite reactions...
and the fake interest rates have stopped the middle class from accruing
disposable income, and sharply impeded the real economy...just look at a
velocity of money graph from the St Louis Fed.

But politically, Bernanke and Yellen are what Margret Thatcher did not see....for she offered that Socialism doesnt work because you eventually run out of other peoples money. Yellen and Bernanke solved that Socialist problem.....they just print it

DC electronics, solving problems that do not exist, creating problems, has merely buried ignorance, debt as income, further in the hole, to proliferate extortion. And employing it to drive real estate inflation, debt as asset, breeding a university medical complex of zombies, renting rooms at $1k/month, mortgaging $60k cars, and replacing the food chain with corn and soy, to skew rates, isn’t helping.

You could solve the problem by inverting the extortion interest rate gradient, but the so-normalized majority will go ballistic either way, at this point, because war of, by and for zombies is their economy. Shutting down the hospital and the school system, and building infrastructure locally, with local resources, to rebuild education, is more effective, and is already happening, at the community level that matters.

Debt as money depends upon easily exploitable natural resources, and a demographic ponzi stupid enough to participate. Sustainable development depends upon the brain in your head, adaptation. The planet is a much higher authority than any government, which itself is a speck in the universe. War is an extreme derivative of misplaced perspective, and America is just the latest part of the empire to subsidize the past.

You are born on a ship, populated by a majority living in ignorance, fear and superstition, the status quo, diverting the ship’s energy systems to entertainment, always attempting to extort more power from a few old-timers, the only ones who can swim and build another ship. Getting angry because the old-timers keep you in the engine room, and intermittently throw you in the water, is self-destructive.

The passive until aggressive majority, practicing group extortion, penalizes aggression, instead of employing it productively, learning to practice individual initiative, leaving it subject to its own irrational aggression. They don’t practice making decisions so they don’t make decisions, and they have built a computer to make decisions for them, the ultimate scapegoat. If you want gravity, the dc computer is your man.

Birth rates are falling and the so-entitled aging are increasing, blowing up the entitlement ponzi fueling the process, the worst possible scenario for the borrow all you can and die before the debt is called majority, which is now a de facto call on currency, globally. Neither P&G selling more adult diapers, nor erasing the mythological barrier between civil and military technology, is going to kick-start the economy. The insurance companies are not feverishly building warehouses, to store dead derivative inventory, by accident.

Troubleshooting, predicting and, heaven forbid, preparing intermittence is way beyond the empire psychology of fear and extortion driving the demand for fixed-cost automation, replacing humans with machines, to extend the status quo. Ignoring the problem until you can’t, and replacing parts at random, only to replace the entire system, faster and faster, doesn’t work, but it does create a lot of economic activity, GDP, until war becomes inevitable.

The Fed has told Congress in the clearest terms possible, for decades, that a particular demographic segment is required to get the economy producing again, for everyone else. Who do you suppose that is? And what do you suppose is going to be required to get those people back into an economic circuit, that the empire can see?

I can tell you with reasonable certainty that it is not more of the same – digital fiat, Internet editors, anyone working on planes, trains or automobiles, or import/export financing, notwithstanding Dubai, Panama and Tesla. You are a battery, far beyond anything the critters can invent. Pulling the hook, and rebooting with a better derivative battery, is not the answer.

You, as a couple, procreating the future, are your children’s authority, a temporary frame of reference, a fulcrum about which they learn to make decisions for themselves, and they are born assuming that you are the heroes of the story, which is true. Without parents, there is no past, and without children, there is no future.

It is that quantum switch that makes the perpetual motion of the pendulum appear. Without you, time is irrelevant, and time is only relevant to the extent you choose it to be. Space travel is about collapsing spacetime, between where you are and where you want to go, filtering the noise of the clock, preparing to be successful until you are.

Getting up with nature in the morning, with a productive attitude, is the first test, only the beginning, and most fail, because their parents failed. The majority tries and fails to replace common sense with superstition, falling further behind with each non-decision. Being human is not a competition, to avoid personal responsibility.

The critters do not want to make decisions, and will not listen to you when it matters, which leaves them no choice but to steal from you, creating the mythology of government for the purpose. Don’t waste your time; the zombies cannot learn, because they only choose to see an empire penalizing work and rewarding busy-work extortion, seeking a scapegoat for outcomes, other than themselves.

Production is not a choice between conspicuous consumption and capital starvation, bipolar religionism confirmation, boom or bust, rotated in circles by SMART technology, to the end of perpetual FILO natural resource extortion, anywhere other than in the psychology of the majority, seeking relevance, status, in each other's eyes, and preyed upon accordingly.

Linking the entitlement systems together with MAD global security dominoes, and employing SMART chips to systematically eliminate leakage, wasn't such a bright idea after all. If you fear, what you fear, your focus, becomes reality. If you do not fear, you become what God meant you to be, yourself, the true basis of supply and demand.

Funny, what happens with increasing climate variability, caused by critters seeking security from change. Did you ever figure out why the brake switch caused acceleration, and the ignition switch turned the car off, while you were driving in heat under nR compilation? How many Boeings do you have to see fall out of the sky?

What is the relationship between P,V & T and V,I & R and a conductor, an insulator and a ground? Fundamentally, what is energy transmission? You can always rely upon consensus, to apply force behind the curve.

Advertizing an offer to give people back their licenses is not giving people back their licenses is not eliminating licensed monopoly extortion.

If you are talking about the person I think you are, no I never once posted anything I wrote on Zerohedge. I typed stuff in google and yahoo search and hackers due to impersonating the website simply reposted it and/or edited it to serve a purpose to make the Zerohedge community hate and despise me. I found out they impersonated Zerohedge itself and ran a bunch of bot programs at least that's what the word on the street is. They called it Project Mayhem. Their objective was to ruin my life. Sad to say I fell for it, I had no idea what was being done. I also pissed off WB7 something aweful and I guess if it wasn't a bot impersonating him decided to crush me too. So if there were tons of rants it was due to me writing in yahoo and google search and or notebook, not a social media site. I expect my life is ruined as a result of what they did to me, I've already given up on life because of this.

I had no idea what was going on since I'm a laymen when it comes to computers but they were waging a war against me, to do so much to a random stranger that you would go so far to destroy their life truly amazes me. I don't think I'm a god at all, I never once posted on this site they reposted everything. It is what it is my life is destroyed because of what these people did to me, I never expected to meet my end this way sadistic hackers who enjoy ruining people's lives for fun. Due to them impersonating Zerohedge on my computer and running bot programs (if that is what happened though i do know they impersonated other sites even my yahoo email account) I assumed the members on Zerohedge were talking shit, when it was a bunch of bot programs supposedly. I wonder if the real truth will ever come out, a few insiders know what's up but the Zerohedge community is misinformed.

So, to explain why those last two charts were created by Fed policies takes a lot of big words that are hard to understand. It is much easier to just say:

Wait, what, where are the unions? Where are the democrats? Where is that guy from France that wrote that big book that everyone read just the first 27 pages? Who's looking out for the little guy!!??!??

You get your 30 second sound bite, then go back to your regularly scheduled program. That, my friends, is reality.

Excellent Post, lets move onto Japan for a good laugh on the effectiveness of this monetary policy. If any other private company invested so much currency into a policy to get this sort of return they would not exist.